A national poll conducted by NBC News and The Wall Street Journal in late May and early June found that 58 percent of those surveyed agreed with the statement “the United States is in an economic recession.” The consensus of academic and business economists is that the recession that began in late 2007 ended in the summer of 2009, when the economy bottomed out. The economy has been growing, albeit slowly and below its potential, for the past four years. Why is there a disconnect between public perceptions and the views of professional economists over the end point of the recession?
One reason is the extent of unemployment in the United States. The Labor Department reported last week that the unemployment rate for May was 7.6 percent. This represents a very high level of joblessness four years into an expansion. Furthermore, the commonly reported unemployment rate understates the extent of joblessness in America.
Almost 12 million Americans are unemployed. An additional 8 million people are categorized as “underemployed” — they want full-time jobs but are not able to find anything more than part-time positions. Finally, more than 2 million people are called “marginally attached” to the labor force — they would like to have work but are so discouraged that they have given up looking for a job. In total, nearly 22 million Americans would like to be working more than they are. This represents more than 10 percent of the population between 18 and 65 years old, and helps explain why a majority of those polled believe the economy is still in recession.
Another reason for the economy-in-recession perception is the substantial disparity across income groups in receiving the benefits of the economic expansion since summer 2009. Analysts at the Federal Reserve of St. Louis note that the aggregate net worth of all American households at the end of 2012 was $66.1 trillion, nearly the same as the pre-recession peak of $67.4 trillion reached in September 2007. At the trough of the recession in March 2009, aggregate household wealth was $51.4 trillion.
The St. Louis Fed researchers concluded that 62 percent of the $14.7 trillion increase in household wealth from 2009 to 2012 was due to stock market gains. Ownership of stocks is concentrated in a small number of high-net-worth households, which, in many instances, are better off today than they were in 2007. However, for the majority of American households, whose income comes from wages and salaries, and whose principal asset is a home that is probably worth less today than it was in 2007, the gains in aggregate household wealth have not translated into an increase in living standards. In the NBC/WSJ poll, 68 percent of respondents agreed with the statement that “the Dow Jones Average has hit an all-time high is an indication that corporations and the wealthy are doing better, but not necessarily the economy overall.”
High and growing amounts of student loan debt also help explain perceptions of the economy. The New York Federal Reserve recently reported that student loan debt is now the second largest category of debt owed by individuals — greater than auto debt, credit card debt, and home equity debt, and behind only first mortgages. The total amount of student debt owed was $870 billion in September 2012, and will likely pass $1 trillion in the not-too-distant future. Americans who owe large student loan balances are less likely to purchase vehicles and homes, and to form families, than comparably-aged and comparably-educated people without such balances.
Eric L. Davis is professor emeritus of political science at Middlebury College.